Student loan non-profits face changes, cuts

Federal student aid changes included in the health care bill that Congress passed Sunday will cut Kentucky's non-profit student loan agencies out of the lending business but won't put them out of business, officials said Monday.

The Kentucky Higher Education Assistance Authority and the Student Loan People, a not-for-profit organization created by the Kentucky General Assembly in 1978, will not lend money through the Federal Family Education Loan program after July 1.

"Obviously, it would have a pretty significant impact," said Ted Franzeim Jr., senior vice president for customer relations at the Kentucky Higher Education Assistance Authority.

The government currently guarantees the loans but pays a subsidy to agencies, such as the Student Loan People, to hammer out the lending paperwork with students. With the change, the federal government will take over the loan-making duties.

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But Franzeim said the student loan provision that Congress passed includes a clause that would allow non-profit agencies to continue servicing — working with debtors as they repay their loans — at least 100,000 accounts.

"The legislation actually recognizes the role non-profits like the Student Loan People and KHEAA play," Franzeim said.

He said it's too soon to know how the law's changes might affect staffing at the agencies, which have offices in Frankfort and Louisville. But he said some duty changes could occur as employees who specialize in lending might absorb the increase in loan-repayment service.

"It will change our business considerably," said state Rep. Carl Rollins, D-Midway, who works for the Student Loan People. "The federal government had taken 30 percent of the lending business; now they're taking the other 70 percent. I'm hoping for the students and their families they can do a good job."

The biggest difference for students and prospective students is that they'll be dealing with a federal employee when they take out a loan.

Also, some college and universities will have to convert their student financial aid software to the federal Direct Loan system to comply with the new law. As of this academic year, four public universities in Kentucky use the Direct Loan system: University of Kentucky, University of Louisville, Morehead State University and Kentucky State University.

Overall, the student aid component included in the health care bill saves $61 billion over 10 years by cutting out middleman lending agencies, which will free up money for more Pell grants and aid, backers of the legislation said.